I honestly think they handled The Mandarin about as perfectly as one possibly could.

Here's the thing: The Mandarin in the comics is undeniably a racial caricature. He's probably the worst example of the Yellow Peril archetype that I've ever seen. He's worse than Fu Manchu, Fu Manchu actually has more heroic and likable qualities than The Mandarin. So if you have to adapt The Mandarin into a modern film and not be mind destroyingly racist, you have to address that. And the way they changed the character not only fixed that problem, but it also commented on the problem itself.

Think for a moment about who The Mandarin is as a person. He's the child of a former noble family in China who lost everything in the cultural revolution before he was born. He grew up bitter, believing that the Chines Government had denied him what he was entitled to by birthright. He became a loser and a bumb, and then entirely by accident stumbled across an alien spacecraft with ten magic rings inside. He used the rings' power to bring together his own guerrilla army and take back what he believed he was owed from the people who took it from him and from the world at large, and along the way adopted social darwinist philosophies that he used to justify his rise to power.

Think about that for a second. Remove his nationality, remove all of the details, and just think of the narrative and the story beats.

He was a bitter, down on his luck loser who believed he had been denied what he was entitled to by people in positions of power. Through sheer dumb luck, he stumbled across a source of enormous power. He did not create this power or earn it in any way, but he still took it for himself. He then used this power to create a criminal and terrorist organization with which he worked to amass political power and take back what he believed was owed to him, developing a philosophy of Social Darwinism along the way. His power source also gives him the ability to, when coupled with his martial arts skills, take on Iron Man in hand to hand combat without a suit of armor.

That describes Aldrich Killian perfectly. He calls himself The Mandarin, he has those dragon tattoos that evoke the imagery of The Mandarin, and he even fits the title of Mandarin, which means "advisor to the king," much better than the comics Mandarin as part of his MO is putting himself in such an advisory capacity where he can leverage political power and run things from behind the scenes.

Literally the only things he doesn't have in common with the comics Mandarin are his birth name, his nationality, his ethnicity, and the exact details of how his powers work. Everything about the character that defines the character is the same. Even his being a corporate CEO who secretly runs a terrorist organization is the same, as The Mandarin was doing that when he was revived in the Iron Man comics a few years ago.

They including all of the defining characteristics of who The Mandarin is as a person while removing the racist elements of the character. Not only did they remove them, but through the decoy character they actually commented on them. The decoy character was a mish mash of racist enemy "other" stereotypes used by the now Caucasian and American Mandarin to prey on white America's fears while also covering his tracks. They were able to keep everything that was good and interesting about the character while simultaneously criticize everything that was racist about the original version. It's pretty brilliant.

The notion that "Killian is the Mandarin like my dad was santa clause when I was a child" is total bunk. It only holds water if you think that The Mandarin's defining characteristic is being an east asian stereotype.

No one said Henri Ducard wasn't really Ra's Al Ghul when they did the exact same thing in Batman Begins.